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Ottawa unveils proposal for new pension plans

The federal government is adding more letters to the alphabet soup that spells out how Canadians save for retirement.

Ottawa unveiled its proposal for the TBP, or Target Benefit Plan, on Thursday. The new voluntary plan would be open to those who work for Crown corporations or federally regulated businesses such as banks, railways, and airlines.

Minister of State (Finance) Kevin Sorenson unveiled a proposal for new pension plans. (Adrian Wyld / THE CANADIAN PRESS)

TBPs would offer a minimum level of guaranteed benefits with an option to add on and contributions that are set within a specified range. Both could be adjusted over time based on market conditions and the plan’s performance.

The framework for the so-called shared-risk plan joins a crowded lineup of retirement income and savings vehicles — CPP, OAS, RRSPs and TFSAs — amid a noisy debate over whether Canadians are saving enough for their golden years.

Kevin Sorenson, the federal minister of state for finance, announced the proposal for Target Benefit Plans during a keynote address to the Economic Club of Canada.

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“Target Benefit Plans are a new, innovative proposal that will help support affordable and sustainable pensions for Canadians,” he said in his speech to a business crowd at the One King West hotel.

Ottawa is looking for
feedback
on the proposal from the public for the next 60 days.

Canada Post, CN Rail, and Air Canada declined to comment on the TBP proposal.

Unions worry that Ottawa’s proposal is designed to kill the defined benefit pension, which ensures employees a guaranteed payout at retirement.

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If a DB plan suffers a shortfall, employers are required to make up the difference. In the past few years, due to low interest rates and poor equity returns, there were large deficits, often in the multi-billion-dollar range.

Employers began moving to defined contribution, or DC plans, where the payout is not guaranteed, but depends on how investments performed over the years before retirement.

The target benefit plan is meant to be a middle ground that ensures guaranteed minimum benefit, though it could make adjustments based on whether there was a surplus or deficit situation.

“The certainty of defined benefit is lost because now it will depend on the funded status of the plan,” said Corey Vermey, a national representative with Unifor who represents workers at CN, Air Canada and Via Rail. “If there is money, then we’ll honour that promise, and if there isn’t money, we’ll have to shave that promise a bit, or cut it significantly.”

Vermey added that given that fewer Canadians are covered by defined benefit plans, there isn’t necessarily a lot of public support to defend them. “It does lend itself to a divide and conquer scenario where it will be difficult to resist the political pressure and public pressure,” he added.

Denis Lemelin, national president of the Canadian Union of Postal Workers, says the latest proposal takes attention off enhancing the Canada Pension Plan, a move that organized labour demanded.

“It’s giving another opportunity to big corporations and crown corporations like Canada Post to try to impose a new pension plan,” he said. “Will there be real consultations? Or will they impose it on workers?”

After Ottawa rejected calls to enhance the CPP, Ontario Premier Kathleen Wynne vowed the province will go it alone with a “top-up” pension plan. Details are expected to be announced in the Ontario budget on May 1.

In his speech, Sorenson said that provincial governments should follow the federal example of focusing on encouraging job growth and getting back to balanced budgets.

“Ontario’s risky pension scheme would have detrimental effects on the economy today and would not provide a fully-funded return for 40 years,” he told the crowd.

Old Age Security, or OAS, is a monthly payment available to most Canadians ages 65 and older. About one-third of working Canadians are covered by employer plans.

A growing chorus of economists and financial planning experts is warning that Canadians, particularly in the middle class, are not saving enough for retirement through RRSPs (registered retirement savings plans), and could face a sharply reduced standard of living after they leave the workforce.

Its author, Philip Cross, former chief economic analyst for Statistics Canada, said Canadians hold trillions of dollars in real estate, in tax-free savings accounts, and other assets that can help provide financial support in retirement.

Cross also points out that, on average, Canadians are waiting longer to retire. One in four Canadians ages 65 to 70 now remains in the workforce. The delay allows more time to accumulate savings and postpones the need to draw down savings, he argues.

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